The Economic Impact of Israel’s Separation Barrier
Extracts of a report of the Mission to the Humanitarian and Emergency Policy Group (HEPG) of the Local Aid Coordination Committee (LACC)

Israel's construction of the "Separation Barrier" is already negatively impacting the economies of the northern West Bank. The most seriously affected are the communities caught between the barrier and the Green Line. The key issue is isolation: The barrier is cutting off communities from their primary income streams, either within the West Bank or in Israel. To the extent that the barrier's course deviates from the Green Line, it has the potential to separate Palestinian communities from one another and/or from their agricultural lands, assets and markets. In addition to the anticipated loss of income (especially from agricultural activities), and the loss of income-generating assets, the barrier may cause other economic distortions, from shifts in production, to changes in domestic and local consumption patterns, and, potentially, encouraging a trend away from a money-based economy to barter.
The economic problems faced by these border communities are not new: Their relative prosperity has been steadily undermined over the last two years by curfew and closure. Access to jobs in Israel - once the primary source of income for many border communities - has been severely reduced. Income from commerce and manufacturing has fallen considerably, due to reduced purchases by workers formerly employed in Israel. Restrictions on travel within the West Bank and between the West Bank and Israel have limited the ability of customers from outside these communities to access other markets, while agricultural producers and manufacturers have been unable to regularly transport goods to markets elsewhere in the West Bank. In the face of declining employment in other sectors, agriculture has become a more important source of livelihood in this fertile region. However, the agricultural sector's ability to thrive is threatened by the barrier's construction.

Population and Land Use in the Border Region
The three governorates most directly affected by the first phase of the barrier's construction are Jenin, Tulkarm and Qalqiliya, which have a combined population of approximately 500,000. This is about a quarter of the West Bank's total population, excluding Israeli-annexed East Jerusalem.
The total land surface of these three governorates makes up nearly 17.6 percent of the West Bank. Land use data for the year 2000 (the most recent available) shows that these three governorates have the greatest area under cultivation of any in the West Bank. Surprisingly, they are among the more urbanized, as well, with built-up areas - residential, commercial and industrial zones - covering 112 square kilometers (11.3 percent of their total area). This represents 21.1 percent of total built-up Palestinian areas in the West Bank. Israeli settlements cover 14 square kilometers (1.4 percent of the total area) within Jenin, Tulkarm and Qalqiliya. This accounts for just over 10 percent of the total built-up settlement area in the West Bank in 2000. (There are no figures for the amount of undeveloped land included in settlements.)
Agriculture is the greatest user of land in these three northern governorates, covering twice as much land as in the West Bank overall. On average, just under 25 percent of the total land in the West Bank is devoted to agricultural production. Jenin, Tulkarm, and Qalqiliya together account for 37 percent of all agricultural land in the West Bank. In 2000, they produced $220 million in agricultural output, 45.1 percent of total agricultural production in the West Bank. Per square kilometer of agricultural land, these governorates produced $430,000 in output - 40.8 percent greater output value per square kilometer than that of the other West Bank governorates.

Economic Conditions in the Northwestern Governorates
More than 40 percent of all West Bank private-sector establishments in the agricultural sector are located in the Jenin, Tulkarm, and Qalqiliya governorates. Similarly, the number of wells and irrigation networks is disproportionate to these governorates' 25 percent share of West Bank population.Also somewhat over-represented are the number of establishments engaged in wholesale or retail trade (including automobile repair), with this sector comprising more than half of all private establishments in the region. This is largely a result of the region's proximity to Israel and the Green Line. However, employment in these establishments is limited, averaging only one or two employees, as most are very small-scale, family-run shops. After commercial enterprises, manufacturing enterprises employ the largest number of residents in these governorates (about 12,000 people) but are also relatively small-scale - engaging on average four people per enterprise.
Labor surveys show a decline in employment associated with the Intifada and the imposition of tighter closure, both internal and external. Of the 21,700 jobs lost from 2000 to 2001 in the three governorates (plus the district of Tubas), the decline in construction accounted for almost 50 percent. Agriculture witnessed the second largest drop at 18 percent of the total.
It is reasonable to conclude that a considerable portion of the decline in jobs was from employment across the Green Line in Israel. This conclusion is based on the relatively heavy concentration of jobs lost in these border governorates - almost half of the people who became unemployed in the West Bank between 2000 and 2001 came from this region - a proportion greater than its population share. (The year 2000 was an olive-harvest year, implying greater need for agricultural workers in Israel than non-harvest years.) By 2001, the unemployment rate in Jenin and Tubas stood at 36.3 percent, and in Qalqiliya and Tulkarm at 25.4 percent. For the rest of the West Bank, the unemployment rate was 19.1 percent. In 2001, the World Bank released a study on poverty in the West Bank and Gaza that developed a "poverty map" - a geographical profile of poverty in the Palestinian territories. On the basis of Palestinian expenditure and consumption surveys, the key determinants of household consumption were identified. Among the key findings were the following: If a household member is employed in Israel, the household is better off than if he or she works in the Palestinian territories; and, in the West Bank, households with members employed in the private sector are better off than those with members working in the public sector.
The 2001 World Bank study presented poverty estimates for 39 West Bank areas. Seven of these areas include communities along the Green Line that are directly impacted by phase one of the barrier's construction. The study showed there was considerable variability in poverty rates among West Bank areas (and among localities within areas, as well).

From Relative Prosperity to Crisis in the Border Communities
While locality-specific employment data are not available beyond 1997 (and governorate-level data beyond 2001), indirect and anecdotal information suggests Palestinian villages and towns on or near the Green Line generally fared better economically than locales situated further from that border. Several factors gave the border communities distinct advantages and greater income earning opportunities. First, proximity to the border and, prior to the Intifada, relatively easy access to the Israeli labor market. Second, the relatively porous border allowed manufacturers, farmers and merchants from border areas to access the wealthier Israeli consumer market.
Third, large numbers of Israelis - both Arab and Jewish - regularly frequented the border towns of Jenin, Tulkarm, and Qalqiliya to purchase lower-cost goods and services, boosting commercial and service incomes. Fourth, the population of these governorates possesses, relative to others in the West Bank, greater agricultural assets, such as land and livestock, coupled with relatively abundant water resources.
However, the natural and acquired economic advantages of this region have been steadily eroded since late 2000. Progressively stricter mobility restrictions for people and vehicles have rendered the Israeli labor and commodity markets considerably less accessible since the beginning of the Intifada. Residents interviewed in the border region say fear of confrontation has also drastically reduced the numbers of Israeli shoppers in local markets. The direct and indirect evidence suggests that the loss of this access has now considerably impacted these communities. Contributing to the economic downturn has been the destruction of both private property and public infrastructure - some built with donor assistance - in the context of military confrontation and occupation. In a forthcoming report, the World Bank estimates that until August 2002 such damage totaled more than US$725 million, with US$110 million of that damage in the three northern governorates. About 58 percent of this damage has been to infrastructure, 23 percent to private property, and about 21 percent to agricultural land and assets. The destruction of such income-producing wealth has further limited economic opportunities for Palestinians. Repeated and extended curfews placed on towns and villages in the north have also constrained economic activity.

The Barrier: Its Course and Impact
Those communities trapped between the barrier and the Green Line will suffer long-term damage to agricultural development and restrictions on the use of water resources and livestock grazing, coupled with increasing transactions costs. The barrier construction process is having a major economic impact on the surrounding area. Its immediate effects include: (i) destruction of agricultural land and assets; (ii) inability to access agricultural land and assets including water resources; (iii) added limitations on mobility of people and goods and, therefore, higher transaction costs; and (iv) uncertainty about the future leading to a dampening of investment in economic activities, including agriculture.

Leveling of Land and Destruction of Agricultural Assets
As of December 2002, physical destruction of agricultural lands and assets had been documented in 53 communities in the Jenin, Tulkarm and Qalqiliya areas. Direct damage to these particular communities from barrier preparation and construction included the destruction of some 84,000 dunums (8.4 square kilometers) of olive and other fruit trees, 615 dunums of irrigated agricultural land (including greenhouses), 37.3 km of water networks, 15 km of agricultural roads, and the loss of other agricultural assets.
According to the Palestinian Agricultural Relief Comittee (PARC), 11 of these 53 border communities are going to lose 238,350 dunums (238.3 square kilometers), land being isolated between the Green Line and the barrier. These communities cultivate about 57 percent of this land, mostly with olive trees and field crops.

Inaccessibility to Agricultural Land and Markets
In addition to these 11 communities, on the basis of research and field work conducted by this mission, phase one construction activities appear to be isolating another four communities between the Green Line and the Barrier. This includes the towns' built-up portions and most of their land. For the most part, the population of these fifteen communities (approximately 12,000 people) have not been separated from their agricultural land, but have been isolated along with it. However, PARC estimates that 450 members of the population derive their livelihood from land located east of the barrier and an additional 20,000 people who own or derive income from land located west of the barrier, reside in communities located on the eastern side. To date, no formal provision has been made by Israeli authorities for regular mobility for those economically engaged on the other side of the barrier. Field reports suggest some agricultural land near the barrier has been declared a closed military zone, while other land is inaccessible due to intimidation by armed guards protecting contractors working on barrier construction sites.
The anticipated course of the barrier will leave an estimated 138,000 people in 16 additional localities surrounded on three sides by the barrier and its associated "depth barriers." An as-yet-unknown portion of cultivated land belonging to these and other localities will also fall into such pockets. For these communities, the likely economic impact has been (or will be) some destruction of agricultural land and production assets as a result of the barrier's construction and limited (if not lost) accessibility to other assets. Mobility of people and goods will suffer, raising transactions costs and also increasing uncertainty about the feasibility of potential investments - particularly when future profitability depends on mobility. Uncertainty regarding future access to agricultural land poses particular dilemmas for producers. These include questions of what, and even whether, to plant, the amount of investment to make in agricultural activities, and how to market output in the face of movement restrictions.
In addition to the 31 communities identified, other communities will be economically impacted by the barrier - losing land, irrigation networks, or other infrastructure while it is being constructed, or having a main (or only) access road cut by its path. There are some 38 such communities, with a combined estimated mid-2003 population of 73,000. Notably, the locations listed lie within 1.5 km of the barrier. Other villages located further to the east will undoubtedly also be negatively affected, deprived of access to urban markets and services in areas closer to the barrier.